July 11, 2008


Typically, people are rewarded for doing the "right thing" - the recent tax stimulus has created a headache for some; but a solution has been created ...

If you were among those taxpayers who chose to have your tax refund directly deposited into an IRA, you won't be surprised at this point [since the last of the tax rebate checks have now been issued] to learn that your economic stimulus check has also been direct-deposited into that same account. This is not a concern unless you had already contributed the maximum amount to your IRA (or had other plans for the rebate).

The IRS is allowing you (in this circumstance) to withdraw up to the full amount of the stimulus payment without triggering taxes or the 10% penalty for early withdrawal. You also won't have to withdraw any earnings on the amount either (typically earnings on excess contributions have to be withdrawn but the IRS has waived that rule). The money will be treated as if it had never gone into the account. You have until April 15, 2009 (October 15th if you file for an extension on 2008 taxes) to retrieve the money from the IRA.

Additional Resources.
Economic Stimulus Payment FAQ
Not Too Late to Get Rebate